CMSME loan recovery better than expected despite pandemic

With the surge in credit growth in the Cottage, Micro, Small & Medium Enterprises (CMSME) sector, the amount of loan recovery also increased in 2021.

The Covid-19 pandemic closed businesses for much of the year, but small businesses have managed to pay off 77.68% loans of the target.

In 2021, the recoverable loans in CMSME sector stood at Tk2,21,78 crore. Of this, borrowers repaid Tk1,71,730 crore.

Although the collection percentage has gone down as compared to 2020, the collection amount has increased by Tk 21,955 crore in 2021. Loan recovery in this sector stood at 87.51% in 2020.

According to stakeholders, loan recovery in the CMSME sector was satisfactory in 2020 as the pandemic hit the country in March of that year. It took three more months to affect the businesses.

But in 2021, traders had to deal with the previous year's Covid fallouts. Even after that, they managed to pay a little less in percentage, but in terms of quantity, it was better than expected.

At the end of December 2021, the CMSME sector's loans stood at Tk2,15,786 crore including defaulted loans, which is 18.63% of the total loans in all sectors.

The loan recovery in CMSME sector was 56.43% in 2017, 70.11% in 2018 and 72.13% in 2019.

When asked about this, Syed Mahbubur Rahman, managing director and CEO of Mutual Trust Bank Limited, told The Business Standard: "The loan recovery rate in CMSME sector is comparatively better than that of large loans in our country. The customers of this sector take short-term loans and the traders also try to make refunds on due time."

"The pandemic struck the country in early 2020, but its impacts were felt much later in the first six months of 2021. However, businesses tried to recover gradually in the second half of 2021. As a result, most borrowers were able to make repayments," he said.

According to central bank sources, loan disbursements to the CMSME sector was Tk1,53,496 crore in 2020, and Tk1,85,428 crore in 2021. So, the year-one-year loan disbursements increased by 20.80%.

The loan disbursements were Tk167970 crore in 2019. So, compared to 2020, the disbursement decreased by 8.6%.

A senior official of the central bank, on condition of anonymity, said many of the small companies that have suffered losses in the pandemic received incentive loans. But they are not as active in repaying incentive loans, as they are in repaying normal loans. Otherwise, the overall loan recovery would have been much better. In addition, disbursement in the second phase is also low due to the low collection of incentive loans.

According to sources, the total number of companies in the CMSME sector stood at 7,85,858 in 2020 and climbed to 9,49,131 companies in the next year. At present, the number of new loan recipient companies has increased to 1,53,273 which is a 19.50% increase in a year.

Moreover, the number of women-run companies in 2021 has increased to 83,268.

Some 18,218 new entrepreneurial organizations of 2020 have received loans of Tk1,38,572 crore and 25,691 new entrepreneurs got loans of Tk1,83,928 crore in 2021. Therefore, the loans and number of entrepreneurial institutions increased by 41.02% and 32.73% respectively.

At the same time, the classified loans in the SME sector in 2021 stood at Tk36,295 crore, which is a 17.65% increase from the previous year. At present, the amount of defaulted loans in the SME sector is 14.40%.

Meanwhile, the financial sector has a target of raising the ratio of CMSME loans to women entrepreneurs against the total CMSME loans to 15% by 2024, but only 4.08% of the total CMSME loans were disbursed among women last year.

In 2021, women-run CMSMEs received Tk8,801 crore in loans, which is 6.76% higher than Tk8,244 crore received in the previous year.  

According to the central bank, small entrepreneurs got the highest 55.22% share of CMSME loans in 2021, followed by medium enterprises with a 33.41% share. The loan disbursement ratio was the lowest, 0.82%, for cottage industries.

The government declared a Tk20,000 crore stimulus loans package to help the CMSMEs overcome the financial shock due to the Covid-19 pandemic.

In the first phase, the loan disbursement rate was 77% of the target in eight months (July-February) in the last fiscal year.

In the second phase, the banks disbursed Tk71.17 billion loans among businesses in CMSME sector in the first eight months of the current financial year (July-February) which is 36.80% of the target.